Clean affordable cooking energy for previously disadvantaged poor households A South African commercial supply case stud

1. IAEE Workshop on Clean Cooking Fuels Istanbul16 June 2008 – Panel II – 10 minute lessons learnt Clean affordable cooking energy for previously disadvantaged poor householdsA South African commercialsupply case study Prepared by Paul Harris and Chris Hazard Integrated Energy Solutions

2. Commercial delivery model - Principles # 1 Household energy model • Energy needs – cooked food • Provision of the service appliance – two plate cooker • Energy source – LP Gas, paraffin # 2 Energisation • Meeting all energy needs simultaneously • Differentiating between essential electricity and thermal needs • Combined energy and appliance solutions # 4 Delivery model and structuring decisions • Selection of optimal “baskets” – fuels and appliances • Supply side facilitation – confidentiality, convergence etc. • Demand side facilitation – customer/market approach etc. • Coordinated implementation with stakeholders

3. A commercial case study from South Africa Project background • Regional electricity net work / power station problems • Constrained electricity grid situation • Urgent Demand Side Management programme Rationale and planned execution • Two industries brought together – LPG and Electricity • Like walking two ladders • Full commercial terms prepared • Open bidding process by LPG suppliers to participate • Urgent procurement of appliances and cylinders • Delivery within 3 months

4. A commercial case study cont. Customer offer - for the exchange of an electric two plate • Quality double plate LP Gas stove – becomes customer property worth R207 • 5 kg LP Gas cylinder (exchangeable for a R50 deposit at any time) and required regulator and connections • Free first fill, up to the value of R45 • R 120 of free LP Gas in the form of a first fill and vouchers redeemable on a monthly basis (four R 30 colour coded discount vouchers) • Total value R422 per low income household ($60) • While stocks last, up to a total of 100,000 low income households

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12. A commercial case study cont. Project results – Numbers achieved

13. A commercial case study cont. Project results – Sustainability (from a #2000 sample) • Question “What energy/fuel did you use to cook your food?”

14. A commercial case study cont. Project results – Satisfaction (from a #2000 sample) • Please rate how satisfied are you with the following: Using a 10 point scale where: 1 = Very Dissatisfied and 10 = Very Satisfied

15. A commercial case study cont. LP Gas affordability issues • LP Gas Industry – Government negotiated price for low income households • Based basically on crude oil price – significant increases • Regulation is now coming in the South African market LP Gas availability issues New retailers set up throughout the supplied areas • Local refinery problems give rise to shortages 2 to 3 weeks • Two cylinders/customer would have alleviated the problem

16. “Key lessons learned” (related to list) Topic 3. Key elements of market creation • Households viewed as “the customer” • LP Gas is seen as a modern thermal fuel • Assistance with the capital cost of switching • Always allow the customer choice to switch or not • Cover all energy needs simultaneously to greatly increase acceptability (essential electricity and thermal) • Offer a market acceptable modern thermal fuel – “one that the rich use” • Viewing the new market development as a bankable project rather than a ‘development project’. • Rigorous performance management with payment for results

17. “Key lessons learned” (related to list) Topic 4. Issues of capital availability & financing mechanisms • Switching subsidies is the key – around $40/household, to kick start the new market development • Finding the subsidy provider – the key • A positive business case is needed by the energy supplier and the funder (based on their particular agenda) • Positive “value equations = price x performance” for all • Commercial players have required rates of return/hurdle rates – these must be met

18. “Key lessons learned” (related to list) Topic 6. Business model sustainability & replicability • Large scale is possible – 89 000 households supplied • Cooking related usage levels are sustainable for the LP Gas industry, plus being a year round load • Replicability of the commercial approach – YES, replicability of the business framework for each situation NO, unique! • Commercially minded project facilitators/change agents with credibility is a non negotiable • Undertake the entire project on 100% commercial principles, from participation tendering, enforced operating procedures, price and time scale penalties etc. • Pragmatic stakeholder management essential • Monitor customer satisfaction

19. Conclusions “Harnessing of major commercial enterprise will be the only way that rapid and substantial numbers of currently energy disenfranchised households can be served, but a different pragmatic modus operandi is urgently needed by development and commercial stakeholders to make it a reality in time. ” I am available for more detailed discussions … Thanks to BP for sponsorship and making the conference possible